THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

BLITZER: Authorities will make licenses more secure, they say, but it could take years. In the end, though, will that make you any safer?

We're on top of this story.

Security guards caught on camera apparently dozing off instead of protecting a nuclear plant, where a breach of security could affect hundreds of thousands of lives. We've got the video. We'll share it with you.

And Bill Clinton just added a new ending to what he called Barack Obama's "fairy tale".

Did he clear up the confusion or did he make things worse.

I'm Wolf Blitzer.

You're in THE SITUATION ROOM.

When you show your I.D. at airport security guards, can they be sure it's really you?

In our Security Watch right now, federal authorities are trying to take some new steps to make driver's licenses a lot more secure. But air travelers may be caught up in a huge bureaucratic battle.

Let's turn to our homeland security correspondent, Jeanne Meserve.

She's watching this story for us.

A lot of paperwork, a lot of bureaucracy.

What's the bottom line -- Jeanne?

What is going on?

JEANNE MESERVE, HOMELAND SECURITY CORRESPONDENT: Well, more secure driver's licenses will help thwart terrorists, illegal immigrants and identity thieves. But the program will put new burdens on states and on motorists.

(BEGIN VIDEOTAPE) MESERVE (voice-over): Fraudulent driver's licenses helped the 9/11 hijackers board planes and carry out their deadly mission. A more secure driver's license is supposed to keep that from happening again.

MICHAEL CHERTOFF, HOMELAND SECURITY SECRETARY: We are eliminating, through this measure, maybe 99 percent of the risk -- maybe 99.9 percent of the risk.

MESERVE: Birth certificates, passports, Social Security cards, utility bills -- the kinds of documents you will need to bring in person to your Department of Motor Vehicles to get or renew a license. The states will have to verify the documents are authentic -- that you are who you say you are, but right now, can't do that.

DAVID QUAM, NATIONAL GOVERNORS ASSOCIATION: We are going to have to rely on electronic databases a couple of years down the road that don't currently exist.

MESERVE: The Department of Homeland Security has significantly reduced the cost of Real I.D. to the states by phasing in the program. People under 50 will get the new secure licenses by 2014, but if you are over 50, not until 2017.

(on camera): Osama bin Laden is over 50.

CHERTOFF: I think if he shows up and tries to get on an airplane, we're going to spot that.

MESERVE: Zawahiri is over 50 years old.

CHERTOFF: You know, Jeanne, it's not perfect, but the essence of risk management is to look at populations and say, by and large, when we look at the people who have gotten on planes and hijacked them or have gotten on planes and detonated bombs, they're in the pool of 50 and under.

MESERVE (voice-over): 9/11 will be a distant memory by the time Real I.D. is fully implemented.

(on camera): Sixteen years after 9/11. Sixteen years.

Is that too long?

TIM ROEMER, FORMER 9/11 COMMISSIONER: Well, it is too long when it's seven years after 9/11, let alone 16 years after 9/11.

(END VIDEO TAPE)

MESERVE: Secretary Chertoff says he would have done loved to have done this sooner, but the states have objected so strenuously -- principally over costs -- that six have passed laws opting out. If these new rules don't satisfy them and their licenses don't comply with Real I.D. , their citizens will not be able to use their licenses to enter federal buildings or board planes -- Wolf.

BLITZER: This is a story, literally, that can affect all of us. Thanks very much, Jeanne, for that.

The Pentagon is now showing an uncut videotape of this week's Persian Gulf confrontation with Iran. And there's word of other recent incidents, including one in which shots were actually fired.

JAMIE MCINTYRE, CNN SENIOR PENTAGON CORRESPONDENT: Well, Wolf, after watching most of this videotape, which is feeding in right now to THE SITUATION ROOM, I can tell you it's not going to settle the debate.

(BEGIN VIDEOTAPE)

MCINTYRE: In response to both Iranian denials, as well as doubts expressed by some Bush administration critics, the Pentagon has released a full, unedited 36-minute version of the video taken by the U.S. Navy Sunday, when it says five Iranian speedboats acted in a dangerous and provocative manner.

Near the end of the tape, you can see an object in the water that could be one of the boxes the U.S. Navy says Iranian boats dumped in the path of its warships.

But questions are being raised about something that's not on the video -- this radio threat, recorded separately, that ratcheted up the showdown to the point where the Navy was ready to open fire.

UNIDENTIFIED MALE: I am coming to you. You will explode after a few minutes.

ADM. MIKE MULLEN, JOINT CHIEFS CHAIRMAN: I can't shed any light as far as the radio transmission is concerned.

MCINTYRE: The U.S. Navy has said from the beginning it could not say for sure where the ominous threat -- heard over an open frequency -- came from. It could have been from the Iranian patrol boats or a nearby ship or a shore station.

If it came from the shore, the Pentagon says it would suggest a higher degree of coordination.

(END VIDEO TAPE)

MCINTYRE: Meanwhile, the Navy has told CNN of two prior confrontations in the month of December. In one case, the USS Whidbey Island, an amphibious assault ship, actually opened fire with some of its guns as a warning shot as it approached the Strait of Hormuz.

Meanwhile, the Navy is saying that maybe it made a mistake in splicing that audiotape to the videotape, which was recorded separately. But it insists the confrontation was real and there's no way for the sailors who are on the bridge of that ship to know at the time where that transmission was coming from -- Wolf. BLITZER: BLITZER: Thanks very much, Jamie, for that.

Jamie McIntyre at the Pentagon.

They recruited and trained Europe's first female suicide bomber. She died in Iraq attacking U.S. troops.

Now, members of the terror cell who sent her have been convicted in Belgium. But authorities are still searching for answers in the case of a Western woman who converted to the Islamic cause.

PAULA NEWTON, CNN INTERNATIONAL SECURITY CORRESPONDENT (voice- over): Iraq, November 2005 -- yet another suicide bomber targets at American convoy, injuring one U.S. soldier. But the profile of this bomber is unnerving as it astounding -- Belgian Muriel Degauque -- a convert to Islam -- is Europe's first female suicide bomber. And within hours, the hunt is onto figure out why.

Within weeks, Belgian police arrest five suspects in their own country, accused of recruiting suicide bombers to take to Iraq. Not just Degauque, but her husband, too. He died the day after his wife -- shot by U.S. forced, explosives strapped to his chest.

Now a Belgian court has convicted all five of them, including ringleader Bilal Soughir, who will now begin a 10-year sentence for grooming Degauque to sacrifice herself.

(on camera): Before trial, investigators here in Belgium studied every detail of this cell, hoping to gain unprecedented information about how and why Islamic extremists are recruited.

(voice-over): For clues, they dissected Degauque's life -- where she grew, up her views on religion. What they found -- a Muslim convert only too willing to prove herself as an wavering soldier of jihad -- not just for herself, but for her husband, too.

GLENN AUDENAERT, DIRECTOR, BELGIUM FEDERAL POLICE: And she was a true believer -- undoubtedly under the influence of her lover. She was in love, but she was a true believer. And she was as dangerous as would be any Islamic fundamentalist at this point.

NEWTON: It is difficult to fathom her conversion. Counter- terrorism officials here say she remains a potent symbol for extremists -- not just because she was a woman and Westerner, but a convert, too.

CLAUDE MONIQUET, SECURITY ANALYST: For the jurist, the fact that convert people join them and go to the extreme sacrifice of their life for the -- in the way of jihad is the proof that they are right. It is the proof that what they say -- the rule of Islam will just rule all the world. NEWTON: And so intelligence officials here have their hands full, like elsewhere in Europe. Belgium is trying to come to grips with Degauque's puzzling path to extremism -- one that still can't be fully explained.

Paula Newton, CNN, Brussels.

(END VIDEO TAPE)

BLITZER: Let's go to Jack Cafferty.

He's got The Cafferty File -- Jack.

BLITZER: President Bush is saying there will be a Middle East peace deal by the end of this year. The president has been in the region this week meeting with Palestinians, Israelis. He's calling for an end to what he says is Israeli's occupation of Palestinian lands that began in 1967.

Mr. Bush says the deal must include Palestine -- a homeland for the Palestinian people. However, he's asking Palestinians, as well, to confront terrorists. And he's urging Arab states to reach out to Israel.

The president took that message to Kuwait today, where the administration said not to expect a blinding flash of Arab cooperation for restarted peace talks -- that's a safe bet. Yet they insist the process is moving forward.

Critics suggest Mr. Bush's trip is more talk than action. Palestinian Authority President Mahmud Abbas still has not been able to stop the militants in Gaza from firing rockets into Israel.

Both sides agree to getting those things done before starting the actual peace talks, but they haven't done them yet.

Meanwhile, President Bush says he'll go back to Israel in May.

So the question this hour is this -- President Bush predicts a Middle East peace agreement by the end of the year.

Will it happen?

Go to CNN.com/caffertyfile. Post a comment on my blog -- Wolf.

BLITZER: Jack, thank you.

A lot of people will do that.

Are they asleep at the switch?

Security guards caught on camera apparently dozing while on duty at a nuclear plant. We've got the pictures for you and the story of the shock waves which followed.

Bill Clinton goes public again to explain his comment that Barack Obama's Iraq War stance is "a fairy tale." Is he clearing up the confusion or is he making matters worse?

And a somber new development in the case of a missing pregnant Marine. Authorities make a stunning announcement about the search and a suspect.

Stay with us.

You're in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: Security guards asleep on the job -- bad in any situation, but especially disturbing at a nuclear power plant. In this case, the evidence is all on videotape.

Let's turn to Brian Todd.

He's watching this story for us.

Tell us about this tape -- Brian.

BRIAN TODD, CNN CORRESPONDENT: Well, Wolf, it has really shaken up the nuclear industry, led to the termination of a major security contract and forced a federal agency to rethink the way it polices nuclear plants.

(BEGIN VIDEOTAPE)

TODD (voice-over): At rest when they're supposed to be at the ready -- security guards apparently asleep on the job at a potential terrorist target -- the Peach Bottom Nuclear Power Plant in Pennsylvania. This video, captured by a fellow security guard named Kerry Beal.

We spoke to his attorney, who gave us the video.

DAVID WACHTEL, ATTORNEY FOR KERRY BEAL: If something were to happen at the plant, it could jeopardize the safety of the people who lived around it.

TODD: One expert tells us, if there was a major incident at Peach Bottom, the fallout could affect tens of thousands of people -- could reach Philadelphia, possibly Washington, D.C. or New York.

Beals' lawyer said Beal would not go on camera. He says Beal began noticing guards sleeping in this so-called ready room when he first entered the guard force early last year.

WACHTEL: He recalls seeing about 20 people at one time or another.

TODD: His attorney says when Beal noticed the problem, he first went to his immediate supervisors at the security contractor -- the Wackenhut Corporation.

WACHTEL: His supervisor told him, "You need to be a team player."

TODD: Wackenhut officials would comment on that directly. But in a letter to CNN, they say they give their employees several avenues to report their concerns.

But Beal's attorney says the plant's parent company, Exelon Nuclear, and the government's Nuclear Regulatory Commission, also didn't adequately respond when the situation was first presented to them. Before it received the video, the NRC asked Exelon to investigate, but dropped the matter after Exelon said it found no evidence of sleeping guards.

So Beal sent the video to a New York TV station.

DAVID LOCHBAUM, UNION OF CONCERNED SCIENTISTS: The company and the NRC were essentially asleep at the switch. They failed to respond to this threat until outside pressure forced them to look into it.

TODD: NRC officials deny being slow to respond and say they relied on exile's initial investigation, ordered by the NRC.

BRUCE MALLETT, NUCLEAR REGULATORY COMMISSION: And we thought, with the information we had, that they had taken an adequate and thorough job. Now, with the information we have, we have determined that is not correct. And so we're looking at our procedure and theirs to see what was missed.

TODD: We attempted to reach the apparently sleeping guards. Our efforts were unsuccessful.

(END VIDEO TAPE)

TODD: An Exelon official says his company responded as quickly and thoroughly as it could, given the information it had at first. Exelon denies claims that Beal claimed to them in the early stages of this whole thing. Exelon has since fired Wackenhut and is putting in place its own internal security force to guard its plants.

All three entities involved in this -- Exelon, Wackenhut and the NRC tell CNN they do not tolerate inattentiveness on the part of nuclear security guards and they're all looking at their procedures to make sure it doesn't happen again. A Wackenhut official says this was isolated and not reflective of the majority of its security force -- Wolf.

BLITZER: Brian, does Wackenhut guard other sensitive nuclear sites?

TODD: It does. It is in charge of guarding the U.S. nuclear laboratory at Oakridge, Tennessee and a facility nearby that houses and manufactures nuclear weapons and houses enriched uranium. That contract was just awarded in June -- five years and more than $500 million. An official with the Department of Energy, which oversees that, tells us that they are pleased with Wackenhut's performance. BLITZER: Solid reporting.

Brian Todd doing excellent work for us, as usual.

Thank you.

The Nuclear Regulatory Commission requires plants to have guards capable of protecting against an armed attack. In fact, the rules say guards must be prepared for a commando-style assault by attackers using automatic weapons, handheld explosives -- even a car bomb. The agency holds drills simulating these kinds of attacks to test for security weaknesses, but the results of those exercises are not made public.

Let's go back to Carol Costello.

She's monitoring some other important stories incoming into THE SITUATION ROOM right now.

What's going on -- Carol?

CAROL COSTELLO, CNN CORRESPONDENT: Well, Wolf, O.J. Simpson is in custody in Florida and will soon return to Las Vegas to face allegations he's violated the terms of his release on bail. Prosecutors say Simpson's alleged no-no is that he called one of his codefendants to express his frustration. Simpson has been out on bail pending his upcoming trial on kidnapping and robbery charges. The former football star goes before a judge on the bail violation matter next Wednesday.

A grim turn in the search for missing pregnant Marine. The sheriff in Onslow County, North Carolina stunned a news conference today, announcing that Lance Corporal Maria Lauterbach is dead and believed buried in a wooded residential area. Investigators are looking for her body and for fellow Marine Corporal Cesar Laurean, who Lauterbach had accused of sexual assault.

City officials in Los Angeles are touting a decrease in gang- related killings, down more than 26 percent last year, to 216. Much of the credit is going to a special task force made up of Los Angeles police, the FBI and other agencies, who worked closely together in a crackdown on gang activity. Overall gang crime in L.A. also declined last year, down 4 percent from 2006.

It is six months in prison for disgraced Olympic track star Marion Jones. She was sentenced today for lying to a federal agent about using steroids. Jones cried as she pleaded unsuccessfully with the judge not to separate her from her children. She was also given two years probation and community service. Jones had already been stripped of her Olympic medals.

That's a look at the headlines right now -- Wolf.

BLITZER: Carol, thanks very much for that.

Retelling what he called "a fairy tale." Bill Clinton tries to clarify a swipe he took at Barack Obama.

But is he just making matters worse?

And the second worst day of the year for the Dow.

Stay with us.

You're in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: Jittery nerves are taking a toll on Wall Street. The Dow plunged almost 247 points today on investor fears of a slowing economy. Two pieces of news that fueled the sell-off. American Express saying it expects lower profits because of slower spending and missed credit card payments. And a "New York Times" report that Merrill Lynch will write down $15 billion in bad mortgages.

The country's biggest bank is coming to the rescue of the country's biggest mortgage lender -- on the verge of collapse from a subprime mortgage meltdown. Bank of America is buying Countrywide for just over $4 billion.

Our senior business correspondent, Ali Velshi, is watching all of this story -- and there's a lot of outrage right now over the CEO of this company, walking away with millions and millions of dollars after this company almost went bankrupt.

What's going on?

ALI VELSHI, CNN CORRESPONDENT: Well, this is the thing. Angelo Mozilo, the CEO of Countrywide, has presided over a company -- he joined the company in 1999. Since then, he's made over $400 million.

But in this contract that he's under, he gets more than $87 million if the company changes hands -- if it's controlled by someone else, if it's bought out, like it has been by Bank of America.

Now, this is in a year where the stock price has gone from over $45 to $7. So investors have lost a lot of money.

It's in a year where a number of people have lost their homes -- sub-prime mortgages -- Countrywide is the biggest lender in the country. And there's some question about what they knew and when they knew the mortgage market was -- was taking a turn for the worse.

So there are a lot of questions about Angelo Mozilo, how much he's made and why he should be getting this kind of money to walk away from nearly driving the country's biggest mortgage lender into bankruptcy.

For people who have mortgages with Countrywide, this is probably good news because it means that the company doesn't go bankrupt, so their mortgages live somewhere. If you do have a mortgage with Countrywide, do nothing differently. The bank will inform you about whether anything changes for you. So, on one level, good news that the situation didn't get any worse for subprime borrowers. But as you just mentioned when you were introducing me, Wolf, the Dow down almost 250 points. So we're not out of the woods in any measure with respect to the U.S. economy.

BLITZER: And Countrywide -- the SEC, they're taking a look at what was going on, I take it.

VELSHI: Yes, they are taking a look at it, because there were a number of things that happened last year which caused them to say did Angelo Mozilo make some deals about how he was going to cash out of that company while knowing that things were going south?

We don't know that that's the case. A number of people, including Congressman Barney Frank and Senator Chuck Schumer, have called for him to give his money up and said serious some things about what they feel about him. So you'll see more of that emerging in the course of the next few days -- Wolf.

BLITZER: It's the kind of thing that makes a lot of people really angry out there, when they hear about those numbers.

VELSHI: Yes.

BLITZER: All right, thanks very much.

VELSHI: OK.

BLITZER: Ali Velshi reporting.

The Clinton camp doing damage control after a comment by the former president spins out of control. Now he's strongly defending what he said.

Listen to this.

(BEGIN VIDEO CLIP)

BILL CLINTON, FORMER PRESIDENT OF THE UNITED STATES: First of all, it's not true. I have given hundreds of speeches in Hillary's behalf in this campaign. I don't believe I've given a single one where I did not applaud Senator Obama in his candidacy. It's not a fairy tale. He might win.

(END VIDEO CLIP)

BLITZER: Retelling the fairy tale -- will it help or is Bill Clinton only making things worse for his wife?

Also, what Barack Obama's campaign says about the impact of race. You're going to find out why some say it's not necessarily the rosy picture it would seem.

Happening now, senior State Department sources telling CNN President Bush will notify Congress of a $20 billion arms sale to Saudi Arabia on Monday. The formal announcement is being moved up to coincide with Mr. Bush's arrival in Saudi Arabia.

Also, the Venezuelan president, Hugo Chavez, is urging European countries to remove two Columbian rebel groups from their list of terrorist organizations. Chavez helped broker the release yesterday of two hostages held by one of the groups, known by the acronym FARC.

And an inaugural flight opening -- a regularly scheduled air service from Australia to Antarctica. A weekly four-and-a-half trip is planned during the summer months, because October and March, but it's open only to scientists -- not tourists.

Carol Costello has been looking into this story for us -- you've been talking to a lot of people supposedly knowledgeable on this very sensitive subject.

What are they telling you?

COSTELLO: Well, it is a sensitive subject, isn't it?

You know, most I talked with today say it is too soon to tell.

Obama seems to have transcended race, but can he in the long run?

Already, critics say Obama's opponents are trying to create this subtle narrative of racial division. They deny it, but it illustrates how hard it is in this country to take race out of the equation.

(BEGIN VIDEOTAPE)

COSTELLO (voice-over): The Iowa caucus created all kinds of excitement surrounding Barack Obama. His win in a predominantly white state and a strong showing in another seemingly proves it -- Obama can transcend race. It's something Obama has always believed could happen. SEN. BARACK OBAMA (D), PRESIDENTIAL CANDIDATE: If I have your support, if I have your energy and involvement and commitment and ideas, then I am here to tell you yes, we can in '08.

COSTELLO: Maybe. But there are those who feel while Iowa and New Hampshire prove Obama can certainly get white votes, it doesn't mean he can continue the trend -- that Obama's second place finish in New Hampshire, despite polls that had him coming in first, illustrates the undercurrent about race that exists in this country.

Andrew Kohut, in charge of Pew Research, has a theory. He says many of those inclined to vote for Hillary Clinton in New Hampshire were poor, uneducated whites who don't participate in polls and who often don't vote for blacks.

ANDREW KOHUT, PRES., PEW RESEARCH CTR.: At least race should be considered because we know that the kinds of people drawn to Mrs. Clinton are always the kinds of people who turn down surveys at pretty high rates. We don't know much about whether the people who we don't get are like the people that we do get.

COSTELLO: Polls about race are notoriously difficult to analyze. Take this ABC/Washington Post poll conducted before the Iowa caucus. A whopping 88 percent of Americans said race would not matter in choosing a president. But pollsters say you have to take this result with a grain of salt. Few people are willing to tell a pollster they're racist. It reflects the Bradley effect, after Tom Bradley, a black man who ran for governor in California in 1982. Most polls showed him leading but he lost to a white male candidate.

COSTELLO: Look at the stats. There is one black governor in the United States. They are nine women governors. They are 16 senators who are women. And one black man, Barack Obama.

Still, Barack Obama got plenty of votes in New Hampshire and in Iowa, which are both 95 percent white.

You could say that trumps the poll, but there are many more people yet to vote and racial under currents that are so hard to predict.

(END VIDEOTAPE)

COSTELLO: Let's face it, Obama has been genius at transcending not race but racial issues. He's very careful to deliver a message that's not exclusionary. In other words, he's a member of the black community, but he doesn't vocalize racial grievances. So far, so good.

WOLF BLITZER, CNN ANCHOR: All right. Let's see what's going on. Carol, thanks very much. A sensitive subject indeed. Bill Clinton made waves this week on the eve of the New Hampshire primary when he complained that portrayal of Barack Obama's Iraq war stance was a "fairy tale." Today, the former president went on the Reverend Al Sharpton's radio show to explain what he meant. President Clinton said he wasn't talking about Obama himself or Obama's campaign. Listen to this.

BILL CLINTON, FORMER PRESIDENT OF U.S.: First of all that's not true. I have given hundreds of speeches on Hillary's behalf on this campaign. I don't believe I've given a single one where I did not applaud Senator Obama in his candidacy. It's not a fairy tale. He might win. He's a very impressive man, and he's run a great campaign. I was addressing a specific argument that had never been brought up in the debates.

BLITZER: So if Bill Clinton said what he meant, meant what he said, why is he out there today having to clarify his so-called fairy tale remark?

Joining us from New York, our CNN contributor Carl Bernstein. He's the author on the book on Hillary Clinton, entitled "A Woman in Charge," the book now out in paperback. And with us here in Washington our CNN contributor and democratic strategist, Donna Brazile.

Let me ask you, Donna. Who do you think? Did the former president resolve this matter? Did he clarify what he meant?

DONNA BRAZILE, CNN CONTRIBUTOR: President Clinton went on several nationally syndicated black radio stations today to clarify his remarks. Look, I take the president at worth. He was not being condescending. He was not being insulting. Rather he was pointing out Senator Obama's previous statements on Iraq and where he may stand now.

This is a very exciting moment for democrats. It's a historic moment. If Dr. King were a live he would be excited to see at least the Democratic Party offering an African-American man and a white woman as the two top choices from the presidency. Not to take anything away from Senator John Edwards who Dr. King would also applaud for raising the issue of poverty in this race.

I think the president understands now that when you use those words some people take offense but we know Bill Clinton. We love Bill Clinton. Bill Clinton has soldiered in the fields for people of color. And I think at this moment, we're going to let things just lie and go on and continue to compete for all the votes out there; black, white, gay, lesbian, women, men, rural, everybody because that's what the democrats do.

BLITZER: Carl, what do you think?

CARL BERNSTEIN, CNN CONTRIBUTOR: Well, somebody told me in the book that Bill Clinton emotionally is still the same guy who got off the boat after Oxford. This isn't about race. This is about Bill Clinton being willing to say and do almost anything in what came to be called the permanent campaign; the permanent Clinton campaign.

The same person said Hillary Clinton stands for good things, but I'm not sure I want to see the circus back in town. Right now we have the Clinton three-ring circus going strong. Bill is in the middle ring. This is about a restoration of the Clintons to the white house. And that's what this is all about.

BLITZER: Donna, the highest ranking African-American in Congress, the number three democrat, the majority whip, Representative James Clyburn of South Carolina, he said something provocative. He hasn't so far endorsed anyone. He stayed out of it, but he says this. He said, "It is one thing to run a campaign and be respectful of everybody's motives and actions. It's something else to denigrate those. That bothered me a great deal." And he raised the possibility he might move away from that neutrality. What do you make of that party of the story?

BRAZILE: Well, Congressman Clyburn has been a champion for making sure that South Carolina was in the mix and making sure that other southern states had an opportunity to weigh in on this choice. I think Mr. Clyburn will remain neutral. He has been, you know, pretty much an advocate for his state, not for either candidate.

I want to say something to Carl. I know the Clintons. I know you have written a book. I have worked for the Clintons. I love them. I respect them. I love Senator Obama. I love everybody. I'm a black woman and I don't have to take a position. I just have to this say vote for someone who will help 47 million Americans with our health insurance and 37 million Americans living below the poverty line. I think that's why Senator Clinton is running. She's not running as part of some dynasty or legacy. One thing I also want to also say, Wolf, since I have my three minutes and I'll get a lot of e- mails today. Look, I'm tired of people talking about Hillary Clinton's voice. She has a strong voice because she talks about issues people care about and we spent the whole week talking about her crying and choking up. Let's talk about issues. Let's get back to issues. Barack is not talking about --

BLITZER: Remember Donna, she did say, Donna, that she thanked the people of New Hampshire for helping her find her voice.

BRAZILE: Absolutely. Perhaps that's because those talking points that they give candidates these days don't work. When you know people are out there hurting, losing their homes, losing their jobs, losing their health care, talk about them. Forget the talking points. You'll sleep better at night.

BLITZER: Carl, briefly go ahead.

BERNSTEIN: Nobody has been better on race than the Clintons, since their teenage years. They're great on questions of race. There are three columns in "The New York Times" all written by women this week about Hillary Clinton and they all ought to be read online because it raises the question on whether what we're seeing is not Hillary Clinton's feminism here but a kind of going back to a kind of futile feminism and I think that all these questions about what Hillary Clinton says and does and Bill, what he says and does, the answers are looking back at what they did and said in the white house. I think the understanding of this campaign is going to ultimately be in the biography of both Barack Obama and Hillary Clinton.

BLITZER: Carl Bernstein and Donna Brazile, serious and important discussion; thanks very much to both of you for joining us.

BRAZILE: Thank you, Wolf.

BLITZER: South Carolina is the backdrop for our next big democratic presidential debate. CNN and the Congressional Black Caucus Institute are sponsoring the forum on Monday, January 21st, five days before South Carolina's democratic primary. Please join me and our Suzanne Malveaux, Joe Johns, for debate coverage on January 21st. That begins at 8 p.m. eastern.

High stakes for Fred Thompson in South Carolina. Now he's going after one of his republican rivals. You're going to find out what Thompson is saying about Mike Huckabee and how Huckabee is giving it as well as he gets.

Plus, Rudy Giuliani is staking almost everything on Florida at the end of the month, but is it coming at the expense of his staff? Find out what sources are telling us.

Stick around. You're in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: Former Senator Fred Thompson trying to break out of the republican pack says this campaign is a battle for the heart and soul of his party. Thompson needs a strong showing in next week's South Carolina primary. He took the gloves off in last night's republican debate. He target, fellow southerner, Mike Huckabee.

FRED THOMPSON (R), PRESIDENTIAL CANDIDATE: On the one hand you have a Reagan revolution. You have the Reagan coalition of limited government and strong national security. On the other hand you have the direction that Governor Huckabee would take us in. He would be a Christian leader but he would also bring about liberal economic policies, liberal foreign policies. He believes we have an arrogant foreign policy in the tradition of blame America first.

BLITZER: Mike Huckabee struck right back early today on CNN's "AMERICAN MORNING."

MIKE HUCKABEE (R), PRESIDENTIAL CANDIDATE: Fred is finally waking up and kind of realizing there is a race going on. But after eight years in the senate, I guess he has nothing to show for it other than he attended some meetings and caste some votes, made a few trips and became a Washington lobbyist. Because he has not told us one thing he did in eight years as a senator. He has attacked me and the point is, if he looked at my record, he would know that he is really needing folks to come off the writer's strike and give him some better lines. BLITZER: Rudy Giuliani is putting everything he has on the line in Florida. The former New York Mayor may be counting on a base of ex-New Yorkers there, but he's having trouble counting up his campaign cash. CNN's Tom Foreman is here. He's watching this part of this story. Is he actually low on funds, Tom?

TOM FOREMAN, CNN CORRESPONDENT: Well, we'll get to that in a minute. What we can say is this, he is facing a real challenge down there. After being on top for much of the year, now like the old Dylan song, he can say, times, they are a changing.

FOREMAN: Rudy Giuliani has a new campaign commercial in Florida, the state where he is laying it on the line. But now comes word that the former New York City mayor may have spending problems of his own. CNN has learned that top campaign staffers were asked to work without pay for this month and perhaps longer. The reason, so that the campaign can concentrate resources on Florida.

GIULIANI: Florida counts this primary season. We are going to make sure of that.

FOREMAN: That's Giuliani's strategy, to focus on Florida which holds its primary on the 29th. And the big states like California, New York, and Illinois, that vote one week later. He's confident that he'll have the money to compete.

UNIDENTIFIED FEMALE: Do you have the money to compete at this point?

GIULIANI: Sure, we can compete. We've scheduled it that way.

FOREMAN: But with poor showings in Iowa and New Hampshire, to many Americans Giuliani appears to be struggling. And he's slipping in the polls. Our new CNN Opinion Research Corporation National poll out Friday has him in third place at 18 percent. Just last month he was on top at 24 percent.

MARK PRESTON, CNN POLITICAL EDITOR: Rudy Giuliani took the risk of non-contesting in Iowa and New Hampshire. Now it appears he's paying the price by being forgotten by the voters.

(END VIDEOTAPE)

FOREMAN: After CNN and other networks reported these potential cash problems, the campaign was quick to respond putting out a statement saying that as of December 31st they had $7 million left to spend in the primaries.

And speaking of politics, tomorrow night on "THE WEEK IN WAR" an interesting political question, why have democrats and republicans alike largely on the trail quit talking about the war? And whether or not in doing so have they essentially abandon the troops they said they were going to support? That's tomorrow night at 7:00 on "THIS WEEK IN WAR."

BLITZER: Tom Foreman hosts that show. Tom, thanks very much.

An election unlike any other. You're going to find out why the race this year could change everything we know about running for the white house. Are we an unchartered political waters?

Plus, what's at stake for John Edwards in South Carolina?

Stay with us. You're in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: 2008 is a presidential campaign with a lot of firsts, but is it really all that different from political battles of the past?

And joining us now for our "What If" segment, our special correspondent, Frank Sesno. What If? What's going on, Frank?

FRANK SESNO, CNN SPECIAL CORRESPONDENT: A lot is going on, Wolf. I think you know it. What if we're seeing a presidential campaign that really breaks the mold? You know American politics can do that. A picture is worth 1,000 words. Abraham Lincoln, first republican, new party was born. FDR first disabled American, though the public barely saw it. John Kennedy, first catholic. Ronald Reagan, the first movie star. One of the things that makes this year so different is that it's filled with firsts.

(BEGIN VIDEOTAPE)

SESNO: There are the rallies and speeches and stumping and plenty of references to past political icons.

SEN. BARACK OBAMA (D), PRESIDENTIAL CANDIDATE: A president who chose the moon as our new frontier.

SESNO: What if this campaign is unlike anyone we've seen? It's just that serious contenders include the first first lady, the first Kenyan American, the first Mormon, the first Vietnam P.O.W., the first Baptist preacher. Is this the American dream or what?

But the mix of personalities in politics that compressed calendars the demographics and the issues all make this a political season for which there's no precedent. What if it really is that different? It means campaigns have to be careful about the lessons they draw and the tactics they adopt. They're playing to new constituencies in new ways. It means pollsters will have to consider who and how they poll. It means the media, so quick to pronounce who is up and who is down, who is in and who is out, may have to withhold judgment, all the recycled consultants an and advisors, veterans working on these cam pans shouldn't try to fight the last political war. Hillary is not bill. Obama isn't Kennedy. What if this really is an unchartered political cycle. It means the voters would make history, not repeat it.

(END VIDEOTAPE)

SESNO: We're tempted to say every election is different. Every election makes history and the most important one America has ever faced. I point to three indicators. Wolf, take a look at this. We're a lot bigger when we talk about the Reagan election year, 1980, 300 million people now. We're a lot more diverse. In 1980, 14 million born outside the country. And now more than 34 million born outside the country. Now we're older. In '84 it is 34 years old. The issues have changed, the candidates have changed a lot.

BLITZER: As Bill Clinton likes to say, 60 is the new 40.

SESNO: He does and as Mrs. Clinton likes to say, it's the economy stupid. That might like to make history repeat itself. I would argue anyway. It's really changed a lot.

BLITZER: Thanks very much, Frank.

SESNO: Pleasure.

BLITZER: Let's get back to Jack Cafferty. He's got the Cafferty file. Jack?

JACK CAFFERTY, CNN CORRESPONDENT: The question this hour is President Bush is predicting a peace agreement by the end of this year. Do you think that's going to happen?

Joe writes, "Peace in the Middle East is not within George Bush's grasp. It has alluded far more capable American and world leaders for almost sixty years."

Karen writes, "Bush yet again is off in la-la land. He'll make sure there is no peace in the Mideast as evidenced by his ongoing saber rattling with Iran. How can he expect ancient enemies, Israel and the Palestinians, to resolve their issues while he discusses possible war with their neighbor? This man has no business traveling abroad. It's embarrassing."

Brian in Delray Beach writes, "Of course it will happen. The real question is: will it work and last? The last few decades of U.S. brokered deals would point to no. We can't fix it and we shouldn't even be trying. Israel doesn't meddle with our border disputes with Mexico. Let's show them the same respect."

Jay writes, "President Bush is a classic narcissistic personality disorder. He believes that anything he wishes to happen will in fact happen. He thinks that anything he wants to do is legal and doable. The tragedy is that some very evil people have let him and helped him. He really needs an intervention like an impeachment to stop him."

And John says, "The president also predicted the war would cost $60 billion and that we would be greeted as liberators. I'm not sure the Middle East can take many more of his predictions and meddling." Wolf?

CNN's Lou Dobbs is standing by with his take on the plan to make driver's licenses more secure. We'll also talk about the political environment right now.

Also coming up in the next hour John McCain delivers a pre- emptive strike in South Carolina. He spoke with John King on the road down there. You'll hear what he had to stay.

Stay with us. You're in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: Let's check in with Lou Dobbs. He's got a program coming up in an hour but I want to pick your brain, Lou, for a second on this whole uproar over the real ID, the driver's licenses. As you know, we've heard from the Department of Homeland Security, once again. In a nutshell, what's the issue here?

LOU DOBBS, CNN ANCHOR: The bottom line is we're going to have secured driver's licenses and states with either idiotic legislators or idiotic governors or both are not going to be able to set U.S. law by acting a fool, as they try to do in New York and have tried to do in seven other states.

The fact is Michael Chertoff, the Secretary of the Department of Homeland Security says three groups of people are going to be extremely disappointed; those are, of course, terrorists, who are trying to use identification fraudulently, illegal immigrants and conmen. Those are three groups of people we want to disappoint. There's going to be controversy, no question about it. But the reality is the states themselves, three states, have given back driver's licenses to illegal aliens. People are coming to the light that we have to security in the country.

BLITZER: Do you have confidence that the Department of Homeland Security under Michael Chertoff can get this job done?

DOBBS: I doubt very seriously they will get the job done. The subsequent administration will have to do so. I believe that with the new congress, the new president will do so. Frankly the American people have had enough of these idiots from the Bush administration, enough of the idiots running for president who say they're going to permit illegal immigration, who say they're going to disavow security in the country. They're not going to be on the national scene very long.

BLITZER: Is the issue of illegal immigration emerging in the democratic and the republican debate as you envisioned, or is it going to the sidelines somewhat?

DOBBS: I think it's -- the democratic candidates, in particular, are running from it. Some of the republican candidates are a little confused. But there's no confusion on the part of the American voter, independent, republican or democrat. They want these borders and ports secured. They want illegal immigration stopped. They're not going to put up with any more nonsense like this comprehensive immigration reform blather that was both parties, the president of the United States and the democratic leadership in the house and senate tried to perpetrate on the American people. Even the Congressional Budget Office called them to account for their nonsense on Capitol Hill. No, this is a time for either the candidates to awaken and keep pace with the American people or be pushed to the side as several are being pushed to the side.

BLITZER: And very quickly, John McCain; he's made a dramatic comeback. You know where he stands long term in terms of comprehensive immigration reform. Doesn't seem to have hurt him at least in terms of his comeback.

DOBBS: Wolf, I mean Senator John McCain this week said he's the one who's gotten the message. He knows that there's going to be border security first before anything else and so long as he gets that message and he has - I have to give him credit. To be honest with you, I mean you've got to give Senator McCain credit. Joining Senator Kennedy to push comprehensive immigration reform, he's moved completely away from it and acknowledges that before any of that happens, we have to secure these borders and ports.

BLITZER: Lou Dobbs will be coming up in one hour. Lou, see you then.

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